3 Most Useful Tax Planning Tips For Self Employed Professionals

Self employed professionals often find it very difficult to file taxes properly, especially the ones who are filing it for the first time. You must follow some basic tax planning tips in this regard. After all, your case is a little different from others, as you are your own boss – you are the employer as well as the employee. You can make things a little easier for you by doing some planning in advance by following these steps.

Estimate Your Yearly Income

The first thing you have to do is to predict how much money you will be earning this current year. Obviously, it cannot be an accurate figure, but having a rough idea will also make things much easier for you. One way to do it is to look at the average monthly income for the first three months and then multiple the same with 4. However, if you are expecting some bonus or larger income in a given month, you must also take that into account. Keep the figures realistic, based on facts.

Get Yourself Educated About Tax Deductions

No matter how many different types of tax planning tips you follow, if you are not well aware of what kind of tax deductions are available, you will never be able to file your taxes properly. Even if you file your return in a proper way, you will not be able to save money on taxes, which you could have easily saved otherwise. Some common tax deductions that self employed professionals may qualify for include any kind of business expenses and health insurance premiums. Using these deductions will reduce your taxes.

Retirement Plan

Solo 401 and SEP IRA are some common retirement plans that you can use. Since you are a self-employed individual, the US taxation laws allow you to make larger contributions as compared to the plans sponsored by employers. The more money you put into these retirement plans, the more you can save on your taxes.

Keeping an accurate record of how much money you spent on your personal car while you used it for business purpose is also one of the most useful tax planning tips. For example, you can keep record of the number of miles you traveled. As per the laws, you can deduct up to 50 cents per mile driven.